America's Exhausted Paradigm: Macroeconomic Causes of the Financial Crisis and Great Recession

This chapter traced the roots of the 2008 financial crisis to a faulty U.S. macroeconomic paradigm built on the neoliberal growth model and neoliberal globalization. As the neoliberal model slowly cannibalized itself by undermining income distribution and accumulating debt, the economy needed larger speculative bubbles to grow. Simultaneously, the flawed model of global economic engagement accelerated the cannibalization process by creating a triple haemorrhage of spending on imports, manufacturing job losses, and off-shoring of investment. That necessitated a huge compensating bubble which only housing could provide. However, when that bubble burst, it pulled down the entire economy because of the bubble's massive dependence on debt. Financial deregulation and financial excess were important parts of the story, but they were not the ultimate cause of the crisis. Those developments were needed to fuel demand that could offset the deflationary pressures unleashed by the neoliberal model. The clear economic implication of that logic was the U.S. needed a new economic paradigm, and that stagnation was the logical next step absent a change of paradigm. The chapter therefore predicted stagnation well in advance of mainstream economists' recognition of that possibility.